Should I Pay Off My Mortgage Before I Retire?

As you approach retirement age you may find you have some savings aside. You may wonder whether or not you should pay off your mortgage or instead carry your mortgage into retirement and invest the money in more high-yielding stock options.

There are pros and cons of both options and it is important that you analyse fully the possible outcomes before making any decisions. It is indeed true that investing can bring much greater financial gains and mortgage interest rates are actually quite low. Therefore, investments seem like a more beneficial option in the long-term.

However, it is impossible to put a price on peace of mind and this is one thing you will have if you own your home outright. Very little beats having a roof over your head come what may.

The key advantage about paying off your mortgage versus using the money to invest is the ‘what if’ scenario. When markets fell dramatically across the globe in 2008, billions of pounds were literally wiped off the board. Whilst this is, of course, a worst case scenario it is still a possibility. If you have chosen to invest in shares, rather than pay off your mortgage, you have to realise that if this happens again you could be facing a devastating and financially challenging retirement.

You simply will not be able to recoup the losses as you are no longer economically active as you were in younger years. Not only will you have lost money you have saved but you will still have a mortgage to repay.

Investing Your Money
Advantages do exist for investing your money. Right now interest rates are low, but they are on the rise. The trouble with investing is that you need to be savvy with your choices or you need a financial adviser in your corner willing to take on your amount of money with a keen eye.

Sometimes with a little investment money you get lost in the myriad of other investors. This could mean your adviser is unable to watch your investments closely and switch them or sell them in time to save you from a loss of money.

For those who are able to watch their investments and understand the market, there is nothing wrong with leaving money in investment accounts. Do you want to put all your money eggs in one basket though?

Probably not, which is why you may want to reconsider bringing your mortgage into retirement as it currently stands. You certainly should assess where you are on the scale of mortgage payments. Is it realistic that you can pay off the entire amount with the income you were considering investing?

What if you were to pay off most of the mortgage and put some investment income away? You could do this as long as you know you have the money from income or a pension account that can make the mortgage payment you require even after you retire.

You see, it is the “after retirement” issue that creates the biggest problem. Most people cannot afford a mortgage payment on their home after they cease to bring in full wages, even with two pension accounts as a married couple. It could create an issue of repossession of the home, thus another reason you may not want to bring your mortgage into retirement as it stands.

Lifetime Mortgage and Home Reversion
You could consider paying off the mortgage and when you reach an older age and your pension is nearly gone, you could take on a home reversion option. This scheme sells a part of your home, which you worked hard to buy. Yet for some it is an okay choice as they may not have children or beneficiaries to leave their home to.

A better option for most is the lifetime mortgage. You do not owe any payments on the interest or lump sum taken, unless you choose an interest only lifetime mortgage. In this situation you can obtain funds you need to live on without the worry of a monthly payment. Of course at the end of your life or your desire to move to a long term care facility, you may find you have to sell the home and have little inheritance for your remaining family.

Before making any decisions, it is always wise to seek independent financial advice with regards to bringing a mortgage into retirement, putting it into an investment account or other financial product. Retirement years should be enjoyed, not stressful.